Financial Glossary for Small Businesses
Running a small business means wearing every hat — including the finance one. From choosing the right business structure to managing payroll taxes and cash flow, here's every financial term you need to know, explained in plain English.
34 terms organized by category
Starting & Structure
LLC vs S-Corp vs C-Corp
Three common business structures that differ in liability protection, tax treatment, and ownership flexibility.
EIN (Employer Identification Number)
A nine-digit number the IRS assigns to your business for tax identification — essentially a Social Security number for your company.
DBA (Doing Business As)
A registered trade name that lets your business operate under a different name than its legal entity name.
Business License / Occupancy Permit
Government-issued permits that authorize you to operate a business in a specific location and comply with local zoning and safety regulations.
Sales Tax Nexus
A connection between your business and a state that requires you to collect and remit sales tax in that state.
Use Tax
A tax you owe on purchases where sales tax wasn't collected — typically on out-of-state or online purchases used in your business.
Accounting & Bookkeeping
Chart of Accounts
A complete list of every financial account in your business, organized by category — the foundation of your entire bookkeeping system.
Double-Entry Bookkeeping
An accounting method where every transaction is recorded in two accounts — a debit and a credit — so your books always balance.
Accounts Payable vs Accounts Receivable
Accounts payable is money you owe to vendors and suppliers; accounts receivable is money your customers owe to you.
Cash Flow Statement
A financial report that shows how cash actually moved in and out of your business over a specific period — the most honest picture of your financial health.
Profit and Loss (P&L)
A financial statement that summarizes your revenue, costs, and expenses over a specific period to show whether your business made or lost money.
Balance Sheet
A financial snapshot showing everything your business owns (assets), everything it owes (liabilities), and the owner's stake (equity) at a specific point in time.
Break-Even Point
The exact point where your total revenue equals your total costs — you're not making money yet, but you're not losing it either.
Gross Margin vs Net Margin
Gross margin is the percentage of revenue left after subtracting direct costs; net margin is what's left after subtracting all costs, including overhead and taxes.
COGS (Cost of Goods Sold)
The direct costs of producing or purchasing the goods and services your business sells — materials, labor, and manufacturing overhead.
Inventory Turnover
A ratio that measures how many times your business sells and replaces its entire inventory during a specific period — higher is generally better.
Working Capital
The difference between your current assets and current liabilities — it measures whether your business has enough short-term resources to cover short-term obligations.
Depreciation Schedule
A plan that spreads the cost of a business asset over its useful life for tax and accounting purposes, rather than deducting the full cost in the year of purchase.
Section 179 Expensing
An IRS provision that lets you deduct the full purchase price of qualifying business equipment in the year you buy it, instead of depreciating it over several years.
Retained Earnings
The cumulative profits your business has earned and kept (rather than distributed to owners) since it was founded — shown in the equity section of your balance sheet.
Banking & Cash Flow
Owner's Draw vs Salary
Two ways business owners pay themselves — a draw takes money directly from business profits, while a salary is a fixed, regular paycheck with taxes withheld.
Line of Credit vs Term Loan
A line of credit gives you flexible, revolving access to funds you draw as needed; a term loan gives you a lump sum upfront that you repay in fixed installments.
SBA Loan (7(a), 504, Microloan)
Government-backed small business loans offered through the SBA that provide favorable terms, lower rates, and longer repayment periods than conventional bank loans.
Merchant Cash Advance
A lump sum of cash given to your business in exchange for a percentage of your future credit card or debit card sales — fast funding but often very expensive.
Business Credit Score vs Personal Credit Score
Your personal credit score (300-850) reflects your individual credit history; your business credit score (0-100) reflects your business's payment history and financial health as a separate entity.
DUNS Number
A unique nine-digit identifier assigned by Dun & Bradstreet that identifies your business entity and is used to build and track your business credit profile.
Tax & Compliance
Payroll Taxes (FICA, FUTA, SUTA)
Taxes that employers must withhold and pay on employee wages — including Social Security, Medicare, federal unemployment, and state unemployment taxes.
Workers' Compensation
Insurance that covers medical expenses and lost wages for employees who are injured or become ill on the job — required by law in nearly every state.
Sales Tax Collection and Remittance
The process of charging sales tax to customers on taxable transactions and forwarding the collected tax to the appropriate state and local tax authorities on a regular schedule.
Payments & POS
Payment Processing Fees
The fees you pay every time a customer pays by credit card, debit card, or digital payment — typically 1.5-3.5% of the transaction amount plus a flat per-transaction fee.
Chargeback
A forced reversal of a credit card payment initiated by the cardholder's bank, usually due to a dispute over the transaction — the merchant loses the sale amount plus a penalty fee.
PCI Compliance
A set of security standards (PCI DSS) that any business accepting credit card payments must follow to protect cardholder data from breaches and fraud.
Insurance
Business Interruption Insurance
Insurance that replaces lost income and covers ongoing expenses when your business is forced to shut down temporarily due to a covered event like a fire, storm, or other disaster.
General Liability vs Professional Liability
General liability covers physical injuries and property damage caused by your business; professional liability (E&O) covers financial losses caused by your professional mistakes or negligence.
Other Business Type Glossaries
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